DAA T-SHIRTS Manufacturing Variable Costs Cost of Each T-Shirt: Cost of T-shirt= $3.75 Cost of Transfer
Question:
DAA T-SHIRTS
Manufacturing Variable Costs – Cost of Each T-Shirt:
Cost of T-shirt= $3.75
Cost of Transfer Paper for Printing= $0.40
Cost of Inkjet Cartridge= $0.10
Direct Labor-Printing= $0.80
Total Manufacturing Variable= $5.05
Non-Manufacturing Variable Costs:
Cost of Inkjet Cartridge= $0.02
Wrapping - Box= $0.20
Folding - wrapping= $0.40
Total Non- Manufacturing Variable= $0.62
Total Variable Costs= (5.05+0.62) = $5.67
Fixed Costs– Cost Year:
Rent= $27,000
T -Shirt Storage= $1,500
Cost of Design= $13,600
Depreciation of Computer= $1,800
Depreciation of Heat Press Machine= $1,500
Total Manufacturing Fixed Costs= $45,400
Non-Manufacturing Fixed Costs:
Rent= $3,000
Depreciation of Computer= $200
Laser Paper= $200
Selling Administration Salaries= $12,000
Liability Insurance Cost= $3,600
Sales Promotion Cost= $4,000
Total Non-manufacturing Fixed Costs= $23,000
Total Fixed Costs= (45400+23000) = $68,400
Annual Cost Formula:
Y= a+bX
Y= Annual Cost
a= Annual Fixed Cost= $68,400
B= Variable Cost Per Unit= $5.67
X= Annula Number of T-shirts Sold
Y= $68, 400+5.67X
Calculation of Profit in The First Year:
Number of T-shirts sold= $7,800
Sale Price of Each =$15
Sales Revenue= (15*7800) = $117,000
Variable Cost= (5.67*7800) = $44,226
Contribution Margine= $72,774
Fixed Costs= $68,400
Profit= $4,374
QUESTIONS
7. If sales could increase by 1,560 shirts (i.e. a 20% increase), by how much in dollars would net operating income increase? By what percentage would net operating income increase? (Use the “quick” way, i.e. contribution margin concept and DOL, you have learned in class to answer these questions. Do not recalculate net operating income.)
8. Prepare a contribution format income statement assuming a sales increase by 20% to 9,360 shirts. Compare your new net operating income and prove mathematically that your answers to the two questions in Question “7” are correct.
9. If the cost per plain t-shirt is expected to increase by 20% and sales (in number of T-shirts) are expected to be 5% less, how much is your projected net operating income (or loss)?
